The shape of the NZEM evident from Figure 1 means that if the market segments, nodes at opposite ends of New Zealand will usually lie in different markets.
This preliminary look at the data suggests that the NZEM may be prone to segmentation and that the extent of segmentation varies across the day.
For example, suppose the NZEM breaks into two due to the HVDC link between the North and the South Islands becoming constrained.
As expected, the first principal component weights all nodes approximately equally and so provides a measure of the overall level of prices across the NZEM. However, the loadings on the second principal component are negative for the four southernmost nodes and positive for the remaining nodes.
Figure 5 shows that the extent of market integration varies over the course of the day, with the first principal component explaining at least 95% of the variation in (filtered) prices across the NZEM before 8:00 a.m.
Figure 6 provides information on where the NZEM segments.
Entry is open to any electricity generator, retailer and trader who meets prudential and other standards of NZEM. A firm becomes a spot market participant (SMP) by signing a contract that is a commitment to abide by the rules of NZEM.
Upon entry to NZEM all electricity market participants (EMPs, constituting the total of SMPs, SPs and the MA) are contractually obliged to submit, under the rules, to the jurisdiction of the MSC.
The MSC has primary responsibility for compliance activities within the NZEM. Within that broad compliance responsibility the MSC has three principal areas of activity.
The NZEM relies substantially on self-policing by market participants.
As the NZEM is an ISO with most services contracted out, the rules that govern its operation are complex.
If asked to do so by a SMP the MSC is required to measure any rule change that has been approved after being voted on by the market against the NZEM's Guiding Principles and may strike down the proposed change if it does not comply with those principles.